Here's What It Takes to Become a Successful Investor – Even in This Environment

If you are an average person – intelligent and capable – who makes decisions with confidence and without emotion and have more than a few years in your investment time horizon before retirement then this article is for you. If you don’t have them, then this article is really for you. Words: 795

So says Jeff Miller (www.oldprof.typepad.com) in excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Miller goes on to say:

Most of those in the baby boomer generation are…worried about retirement, even poverty…[with] many now expecting to work much longer before retirement. Investment mistakes have been part of their problem [because] if they make more mistakes, there will be no solution. In this article I will provide an outline of the thought process required to be a successful individual investor [and] then I will suggest some ideas about how this applies right now.

Characteristics of the successful investor

Below is a very brief outline of what you need to succeed. Each step is essential. It is not graded on the curve!

Understand the need to plan. If you don’t have one, you are completely adrift and will almost certainly fail.

Know how to plan and how to evaluate the outcome. If your plan does not include adequate return or protection against inflation, you cannot expect to meet your retirement goals.

Choose investment approaches that will meet your goals — both risk and reward. Don’t kid yourself! Do not pretend about risk tolerance. Know the expected volatility of your investments.

Understand your time frame. The best way to meet long-term goals is through long-term investments. This does not mean “buy and hold.” Active management requires finding good themes, weeding out losers, and rebalancing your portfolio.

Adopt a system. Discover a method for selecting stocks or ETFs that you know and understand. Find a way to test or to verify the results. If you do not have confidence in the system, you will abandon it at the worst possible time.

Find warning indicators. You need to know if something really unusual is happening. Some said that 2008 was like a 100-year flood. That might be an overstatement, but you want to have an objective indicator of that kind of problem.

Stick to your system. If everything is within normal ranges, then there is no reason for alarm.

Beware of the news. The news is always about problems and potential disasters. Some of it comes from those profiting from your fear. Widely publicized worries are reflected in market prices. It is the unexpected –the true black swan — that requires attention.

Do not use political opinions in your investing. We are in a state of perpetual campaigning. There is always something wrong and we can count on the “outs — either party” to make it all see terrible and finally,

Give your plan a chance to work.

At times like now, many investors are wondering why they are not traders…[but] my experience is that trying to mix the trader and investor approaches does not work. If you want to do this, you should allocate part of your account to each method. The problem is that the rules and the psychology are completely different. The trader does not — must not — care about fundamental values (his time frame is too short, and his daily stakes are too high) [while] the investor buys stocks that are hated by the market… [based on] the value of the business… One a year or so is often enough. It is a different mentality.

The Current Prospects

For long-term investors the current environment represents an exceptionally attractive opportunity. The highlight factor is the widespread misperception about the misnomered “end” of QE II, which will soon be known as the Y2K non-event of this decade…

Conclusion

For the fearful investor, your choice is clear. You can be a deer in the headlights, mesmerized by fear, and watching inflation eat away at your remaining assets… or you can take control…..[and become a successful investor – even in this environment.]

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